Megadeals buoy tech M&A totals, but how long can it last? – S&P Global

Tech M&A is still setting records in 2022, largely due to a spate of megadeals, raising questions about whether the buying spree can continue as interest rates climb and markets turn sharply bearish.

The pace of deal-making in 2022 is on track to match or exceed 2021’s record pace. For the year through May, 2,272 industry transactions were signed, totaling $386.95 billion. By comparison, 4,321 deals were signed during full year 2021 for an aggregate value of $790.94 billion, according to 451 Research.

Industry megadeals have propped up industry transaction values through the year. Between January and May, acquirers announced eight technology and telecommunications transactions that crested the $10 billion mark. The prior year saw 12 11-figure transactions over the year.

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The megadeals in 2022 are coming in higher than those announced in 2021, suggesting the record months of 2022 are more dependent on one-off massive deal values. They include record-breaking purchases like Microsoft Corp.’s $74 billion catapult into gaming development with its acquisition of Activision Blizzard Inc., Broadcom Inc.’s aggressive expansion of enterprise software with its $61 billion bid for VMware Inc. and Elon Musk’s eccentric $44 billion play for social media platform Twitter Inc.

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Even without the year’s biggest deals, volumes have remained elevated in a market that seems to be coalescing at the two extremes of deal sizes.

March and January 2022 were the top two most-active months of the past decade for technology and telecommunications M&A volume, respectively, even as March recorded about half the aggregate deal value of January. Those are just two of four months in 2022 that are the top 10 busiest M&A months of the past 10 years.

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The 11-figure headlines are obscuring a retreat in deal valuations in 2022. Technology and telecommunications acquirers are paying an average of 3.7x enterprise value-to-trailing revenue through May. That is down from the 4.3x average for full year 2021, but it is still a turn or more above average valuations in any of the 10 years prior to 2021.

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Average monthly valuations have seesawed since January’s high water mark of 4.7x, and the trend line seems to be emerging in a floorward trajectory. May was a low point of 1.9x.

With the market roughly three-quarters of the way through June, the last month of the second quarter could illustrate just how dependent the industry’s robust M&A figures are on splashy megadeals. The month has seen no purchases over $2 billion, and average valuations were trending at just 2.8x as of June 21.

While the month has seen 287 announcements as of June 21, total values reach just $10.82 billion, nowhere near May’s total deal values of over $102 billion.

May, which saw the announcement of Broadcom’s VMware buy, ranked among the most highly valued M&A months of the past 10 years for the industry.

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451 Research is part of S&P Global Market Intelligence.